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Congratulations, Graduates: You Owe $1 Trillion

As members of the Class of 2013 toast to their college careers and prepare to enter the “real world,” the stark reality of student loans looms. With student debt in the U.S. at startling levels – over $1 trillion collectively, with 2013 college undergraduates averaging more than $35,000 in debt – Certified Financial Planner Board of Standards (“CFP Board”) Consumer Advocate Eleanor Blayney, CFP®, urges consumers to be sure the new graduates in their lives understand the options available when beginning to repay student loans.

“Our nation’s lawmakers, when not worrying about our national debt, are trying to address the problem of student indebtedness,” says Blayney. “Making the discussion even more urgent is the looming July 1 deadline when the rate on federal loans will double to 6.8 percent from the current 3.4 percent, unless Congressional action is taken.”

As recent graduates embark upon life after college – entering the job market and managing their own finances – Blayney offers tips to help them smartly repay their higher education debt. The tips are part of the latest installment of CFP Board’s recently-launched blog, “Let’s Talk Planning,” and the second feature in its “Financial Planning is for Everyone” series.

In her most recent post, Blayney makes the following recommendations for new college graduates:

Identify all your loans. The type of loan, the identity of the issuer, the identity of the borrower (you or your parents), the interest rate and the amount of the loan will determine your repayment options. If you have federal loans, go to the National Student Loan Data System to identify your loan type – such as Direct, Stafford, Plus or Perkins – and the amount of each.

Define your overall financial planning goals. Your career choice or desire to continue your education can make you eligible for deferment of your loan payments, and in some cases, even result in loan forgiveness. For example, the federal government’s Public Service Loan Forgiveness Program offers graduates working in public service – including for the government or non-profit organizations such as schools or foundations – the opportunity to qualify for loan forgiveness after successfully making 120 monthly payments.

Evaluate your alternatives. Your loan repayment plan options can be based either on your income – if you meet certain financial criteria – or the amount of your indebtedness. Ensure that your payment plans fits your budget. A useful tool for comparing the various repayment plans – in terms of initial monthly payment, final monthly payment, total interest paid and total amount paid – can be found at StudentLoans.gov.

Monitor your progress. Keep tabs on your loan payments and total indebtedness. If your repayment plan is no longer appropriate to your financial needs or circumstances, contact your loan servicer to discuss alternative options. Whatever you do, do not be delinquent in paying your loan, or go into default (usually defined as going 270 days without making required payments).

Consulting with a CERTIFIED FINANCIAL PLANNER™ professional can help recent graduates develop strategies for managing student loans while still progressing towards other financial goals.

“The rules are complex and changing, and a wrong or hasty decision when managing student debt can cost plenty. Talk to a CFP® professional who can help you keep those student loans in perspective,” says Blayney. “Student loans should be the key to a better future, not a lifelong burden holding you back.”

ABOUT LET’S TALK PLANNING AND FINANCIAL PLANNING IS FOR EVERYONE

“Let’s Talk Planning” is a blog by CFP Board Consumer Advocate Eleanor Blayney, CFP®, with posts each week with practical financial planning tips for consumers, as well as insights into the latest developments at CFP Board. In addition to offering counsel on timely and evergreen financial planning topics, once a month Blayney will remind readers that “financial planning is for everyone,” with tips for consumers of all ages and life stages.

ABOUT CFP BOARD

The mission of Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for competent and ethical personal financial planning. The Board of Directors, in furthering CFP Board's mission, acts on behalf of the public, CFP® professionals and other stakeholders. CFP Board owns the certification marks CFP®, Certified Financial Planner™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. CFP Board currently authorizes more than 68,000 individuals to use these marks in the U.S.